Regional Trajectories of Entrepreneurship, Knowledge, and Growth by Michael Fritsch & Michael Wyrwich

Author:Michael Fritsch & Michael Wyrwich
Language: eng
Format: epub
ISBN: 9783319977829
Publisher: Springer International Publishing

6.2 Regional Culture of Entrepreneurship, New Business Formation, and Regional Development

Many empirical studies find that the level of self-employment and, particularly, new business formation has a positive effect on regional growth in most regions and time periods, especially in the longer run (for an overview, see Fritsch 2013). Theory, as well as empirical evidence suggests that this effect is driven by the competition between newcomers and incumbents. The more intense the competitive threat posed by start-ups to incumbents and the more the incumbents react to this challenge by improving their products and processes, the larger the positive effects on a region’s economic performance (Fritsch and Changoluisa 2017). Specifically, entrepreneurial initiative that manifests in new business formation may facilitate flexibility of the regional economy and a productive response to external challenges such as severe changes in the socio-economic environment.

Once again, both theory and empirical evidence suggests that regions with high start-up rates will have higher growth rates. However, regressing regional growth on start-up rates at the beginning of the period of analysis poses an endogeneity problem because new business formation might be a symptom of growth rather than a source (see Anyadike-Danes et al. 2011). For example, growth may encourage larger markets and structural change that create additional entrepreneurial opportunities.

Glaeser et al. (2015) attempt to dispel endogeneity concerns by using an indicator of regional entrepreneurial culture taken from a much earlier time period that they assume is not the cause of current economic growth. The measure they use is a region’s distance from coal mines that were operating in the early twentieth century. The idea behind using this indicator is based on the observation that coal mining areas were characterized by large-scale plants and relatively low levels of self-employment. Glaeser et al. (2015) argue that geographic proximity to historical mines at the beginning of the twentieth century is negatively related to the emergence of an entrepreneurial culture over time, leading to relatively low current levels of entrepreneurship. They justify their identification strategy by citing Chinitz (1961). Chinitz compares the economic structures of Pittsburgh and New York City and explains the low levels of self-employment in Pittsburgh with the presence of large-scale industries such as coal mining and steel, which, in turn, contributed to the emergence of an entrepreneurship-inhibiting climate that has to some degree persisted until today. Glaeser et al. (2015) find that there is indeed a negative relationship between proximity to historical mines and the level of entrepreneurship today that may be due to a lack of an entrepreneurial culture.

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